As trade wars heat up, businesses need to protect their profit margins from increased tariffs. Gravity Supply Chain Solutions CEO, Graham Parker, explains how this can get achieved by digitising the supply chain.
Optimism over an end to the trade war between the U.S. and China seems to have grown further following an extension to the original 90-day trade deal truce, which was due to expire at the beginning of March. However, the U.S. government alleges that the CFO of the Chinese telecoms giant, Huawei, has broken U.S. trade sanctions, and accuses the company of acting as a backdoor for the Chinese government to access U.S. trade secrets, subsequently passing a law that bans federal agencies from buying their products. Huawei, in return, now intends to sue the U.S. government.
In the wake of these allegations, growing hostilities between the two nations could result in trade wars intensifying yet again. For businesses, this would likely mean more rising tariffs. The immediate impact of the tariffs is that they make it more expensive for American companies, manufacturers, retailers, and suppliers, to import products or raw materials from China. American firms will also find it costlier to export goods into China.
China is the largest trade partner of the U.S. according to the U.S. Census Bureau, which estimated that bilateral trade between China and America, reached US$636 billion in 2017, and given this fact, it is highly likely that the reciprocal tariffs will increase the costs of a large proportion of U.S. based companies.
Many noteworthy U.S. corporations have already attested to this fact. For example, General Electric stated that new tariffs on its imports from China could raise its costs by US$300 million to $400 million. Caterpillar claimed U.S. tariffs on imports from China would increase its material costs by around US$100 million to $200 million in the second half of the year.
Protecting Your Business From Tariffs, And Trade Wars
In light of these increased costs of importing from China, companies may choose to absorb the higher expenses which will lower their margins, or decide to pass on the increased costs to their customers by raising the prices of their goods. However, this may reduce demand for their products, negatively impacting sales.
The most effective way for companies to cushion the impact of tariffs is to find ways to make their business run more efficiently which will reduce operating expenses, and offset any increased costs due to tariffs. One powerful way of making business more efficient is through digitisation of the supply chain.
Digitising The Supply Chain
Here are three ways that digitisation of the supply chain can improve business revenues and margins, and offset the impact of tariffs.
1) Removing the pain points of laborious manual processes
Supply chains are complex operations, with hundreds or sometimes even thousands of people involved. While recent technological advancements have made supply chain management easier, many companies still rely on manual processes to collect, review, and input data; including manual data entry - keying in data for purchase orders, bookings, invoices, or quotes - which often involves copy and pasting such data from another system. If you multiply this type of repetitive, mundane activity, by the number of times an employee performs the operations throughout the working week, it equates to a great deal of wasted time. Manual tasks are also hugely error prone, inconsistent, and difficult to track, resulting in poor visibility, and insights that are inherently flawed due to being based on substandard data which makes it challenging to stay on top of what’s happening in the supply chain, and diminishing the ability to make smart data-driven decisions.
Businesses can invest in a digital supply chain platform that automates such data entry by automatically collecting, and updating the data from across the many relevant sources, all accessible in a single system, rather than spread across multiple systems that don’t communicate. Such automation streamlines workflows, resulting in the reinstatement of the many previously wasted working hours while saving the company money as a direct result of the management of the supply chain getting performed at a much faster and more efficient rate. For example, automating the process of choosing the best sailing schedules for 100 major ocean carriers, covering over 90 percent of global container capacity, will give managers more time to spend on activities which grow the business, such as negotiating better vendor prices.
2) Accelerating speed to market
In today’s world and thanks to the likes of Amazon, smart technologies and mobile devices, consumers want products as quickly as they can get them. Businesses which fail to provide their customers with what they want, as soon as they want, will lose sales opportunities, and market share, to competitors.
The ability to get products to consumers quickly is contingent upon the speed of a company’s supply chain. Primarily, a digital supply chain provides real time visibility on the movement of goods across a company’s supply, and logistics networks, from product conception, to transit, to arrival at destination. This visibility allows companies to make data-driven decisions to ensure the timely delivery of products. As an example, an early warning that announces if a shipment might become delayed due to port congestion; allows for a company to take remedial action, such as air freighting inventory from another warehouse, to compensate for the delayed shipment.
Furthermore, a digital supply chain provides a single platform through which all supply chain partners ranging from businesses to logistics providers, to suppliers, can all share information, and collaborate seamlessly, facilitating teamwork, and reducing misunderstandings, all of which contribute to a faster delivery timeline.
Lastly, the automation of manual processes as mentioned above means less time gets wasted on administrative work, allowing for more time to get spent on optimising deliveries.
Through faster speed to market, companies could also increase their sales and revenue.
3) Reducing the costs of product sourcing
When a company’s regular suppliers are charging extra due to tariffs (or any other reason), organisations are forced to look for alternative supply partners or even new supply markets that can offer better prices. A digital supply chain platform can support sourcing teams to make the data management aspects of this process seamless, by providing a single platform to onboard vendors, send briefs, and receive and compare quotes all in one place (rather than spread across various emails, systems, and documents). In this way, a business can take new vendors onboard and compare their quotes quickly and painlessly, so allowing them to identify which vendor is offering them the best value quickly.
Tariffs, like corporation tax, are external economic pressures, which affect the bottom line of companies, over which businesses have little, or no control. The supply chain is, however, something which companies do have control over. By digitising their supply chains, companies can become much more efficient at what they do, helping them offset tariffs and other external economic overheads.